All Forum Posts by: Sanjai Dayal

 The grouping election in general needs to be filed on the first tax return that includes the activity so you can't wait until next year.

You might be able to do a superseded return.

I think our firm and also any other firm that knows Section 469 well can handle the grouping but it's now March and that's basically as busy as it gets in tax accounting world. So, very possibly there isn't time to make all this work.

Note: The "classic" way to have arranged this would have been a cost segregation study to accelerate a bunch of the depreciation into 2024, arrangement of the subleases and ownership percentages to mesh nicely with the grouping regulation requirements.

Amazing! Thanks so much for the citations. I do rent out a portion of the office space. I've actually been in touch with a couple of accountants to discuss the grouping election but have not received any definitive conclusions. It seems very few accountants understand the details of grouping elections. I'll read more about it!! Thank you again!! 

This comment is late but @Sanjai Dayal? If you haven't yet filed a tax return that reports on the building activity or the medical practice activity, you want to confer with your tax advisor about possible grouping elections. Your post doesn't provide enough detail to know if any are possible. But there might be ways to treat the building and the medical practice as a single activity and then unlock a bunch of depreciation via cost segregation.

Probably too late if we're talking about 2024 but if 2025? Possibly something like this works if you own 100% of both the medical practice and the building. Your medical practice rents 100% of the building from your building LLC. Makes grouping election as per Reg. Sec. 1.469-4(d)(1)(C). Medical practice then subleases some of that space to subtenants. Maybe makes grouping election per Reg. Sec. 1.469-4(d)(1)(A). (This technical detail... if you were doing this? You'd be channeling the logic of the old temporary and now superseded regulation §1.469-1T(e)(3)(vi), Example 4. So, you'd want to be careful. But it's worth exploring if the ability to group is still potentially open?)

P.S. I'm providing citations to the relevant treasury regulations for other tax practitioners reading this and in case you want to provide them when/if you talk with your tax advisor. But main point here is, grouping elections can unlock real estate depreciation deductions in sort of the same way that "real estate professional status" and "short-term rentals" do.

@Sanjai Dayal If your LLC owns the commercial building and leases space to your medical practice LLC, it's essential to charge rent at fair market value (FMV) to avoid IRS scrutiny. Setting rent significantly above FMV could be seen as an attempt to shift income or inflate deductions, leading to potential penalties. Rent payments from the medical LLC are fully deductible as a business expense, while the property-owning LLC will report the rent as taxable income, which can be offset by deductions for expenses like mortgage interest, property taxes, maintenance, and depreciation.

To ensure compliance, document how FMV was determined—using market comparisons, an appraisal, or similar data—and draft a formal lease agreement outlining the terms, rent amount, and responsibilities. This establishes the legitimacy of the arrangement and protects against audit risks. Additionally, if your goal is to maximize personal financial benefits, consider profit distributions from the property-owning LLC, which may provide tax flexibility depending on your situation.

By adhering to FMV, maintaining proper documentation, and structuring the lease agreement carefully, you can optimize tax benefits while staying compliant.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Unless the seller is worried about the property not appraising for contracted the sales price, they most likely will not have a preference to cash over conventional financing.  Certainly, every seller is different, so it's good that you have options.  North Carolina is a great state.  I hope you enjoy it there.  I lived in the Raleigh area for a number of years and spent quite a bit of time at the coast near Wilmington.  Lots of fun places to visit and what a great place to live!

Why not take advantage of the best of both worlds?

Realistically a cash offer means you will not have a contingency for financing, and if the appraisal comes back lower than expected, that is your problem.  If you get to the closing table and your cash happens to be partly coming from a mortgage, nobody is going to care (as long as you gave the Title Company enough time to prepare the documents.)

But, if you make a cash offer and intend to use your LOC, you are taking on some additional risk. If your LOC gets frozen before you take the cash out, you could lose all your earnest money. In your case, you are also taking on currency risk. LOCs are best used for short-term needs so you would likely want to pay it off by putting in place a proper mortgage on your purchase anyway.